Banks with International Presence or Derivative Outstanding of ₹25,000 Crore and Above Must Adopt Standardised Approach
MUMBAI (Economy India): The Reserve Bank of India (RBI) has issued revised norms for the Standardised Approach for Counterparty Credit Risk (SA-CCR), tightening the framework for banks with significant exposure to derivatives and strengthening the way counterparty risks are measured for regulatory capital purposes.
Under the revised framework, the SA-CCR will be applicable to banks with an international presence or banks having a book value of derivative outstanding of ₹25,000 crore or more, calculated on a consolidated group-wide basis.
Banks that do not fall into these categories will have greater flexibility. They may choose to continue using the existing Current Exposure Method (CEM) or adopt the SA-CCR framework.
The revised approach is aimed at bringing India’s regulatory framework closer to international Basel standards and making capital requirements for derivative-related counterparty risk more risk-sensitive.
What Is SA-CCR?
Counterparty credit risk is the risk that a party to a financial contract, particularly a derivative, may fail to meet its obligations before the transaction is settled.
Derivatives such as interest-rate swaps, foreign-exchange contracts, options and other financial instruments can create exposures that change with market conditions.
The SA-CCR provides a standardised method for calculating a bank’s exposure at default (EAD) from derivatives. Under the Basel framework, it covers over-the-counter derivatives, exchange-traded derivatives and long-settlement transactions.
The framework takes into account both the bank’s current replacement cost and potential future exposure, thereby providing a more comprehensive measure of counterparty risk.
Which Banks Will Have to Use SA-CCR?
The RBI has set a clear threshold for mandatory adoption.
The SA-CCR will apply to:
- Banks with an international presence, and
- Banks whose book value of derivative outstanding is ₹25,000 crore or more, calculated on a consolidated group-wide basis.
For other banks, the RBI has allowed a choice between the existing Current Exposure Method (CEM) and the SA-CCR.
This differentiated approach means banks with larger and more complex derivatives businesses will face a more sophisticated standard for measuring counterparty credit exposure, while smaller banks will retain regulatory flexibility.
RBI Had Invited Stakeholder Feedback
The latest directions follow the RBI’s draft Amendment Directions on Standardised Approach for Counterparty Credit Risk (SA-CCR) issued on June 10, 2026.
The central bank had invited comments and feedback from stakeholders before finalising the revised framework.
The consultation was part of the RBI’s broader effort to align India’s prudential framework with evolving international standards while taking into account the structure and scale of the domestic banking system.
Why Counterparty Credit Risk Matters
Counterparty credit risk becomes particularly important when banks have large derivatives portfolios.
Unlike a conventional loan, where the amount owed is generally known at the time of lending, the value of a derivative can move significantly as interest rates, currencies, equity prices, commodity prices and other market variables change.
A bank may therefore face a substantially larger exposure in the future than the amount currently reflected in the contract’s market value.
The SA-CCR framework is designed to capture this potential future exposure more effectively.
Moving Beyond the Current Exposure Method
The existing Current Exposure Method broadly calculates exposure using the replacement cost of a derivative together with an additional amount representing potential future exposure.
The SA-CCR provides a more risk-sensitive methodology and is designed to better reflect the characteristics of different derivative transactions and netting sets.
The RBI’s existing framework provides for SA-CCR to be used for calculating exposure at default for OTC derivatives, exchange-traded derivatives and long-settlement transactions.
The move is consistent with the Basel Committee’s global framework, under which SA-CCR is the standardised methodology for counterparty credit risk for banks that do not have approval to use an internal model approach.
Impact on Banks with Large Derivative Portfolios
The revised rules are likely to have the greatest impact on banks with substantial derivatives businesses.
Such banks will need to ensure that their risk-management systems, capital planning, data infrastructure and internal controls are capable of supporting the SA-CCR methodology.
The change could also influence the way banks assess the capital cost associated with different types of derivative transactions.
Banks with smaller derivative portfolios, meanwhile, can continue using CEM if they choose, avoiding an immediate requirement to migrate to the more complex standardised framework.
Strengthening Capital and Risk Management
The RBI’s move is part of a broader effort to strengthen the capital framework for Indian banks and improve the measurement of risks arising from complex financial transactions.
The central bank has been progressively aligning its prudential regulations with Basel III standards while introducing provisions suited to India’s banking sector.
Recent changes to the counterparty credit risk framework have also included refinements relating to consolidated group exposures, derivative add-on factors and exposures involving qualified central counterparties.
A More Risk-Sensitive Banking Framework
The revised SA-CCR framework is expected to improve the consistency of counterparty credit risk measurement across banks with significant derivatives exposure.
For large banks, the move means that derivatives-related risks will need to be incorporated more comprehensively into regulatory capital calculations.
For smaller banks, the option to continue with CEM provides flexibility and avoids imposing the same level of implementation complexity irrespective of the size of their derivatives operations.
RBI’s Broader Regulatory Objective
The latest directions underline the RBI’s focus on strengthening the resilience of the Indian banking system as derivatives markets become increasingly sophisticated.
By applying the more advanced SA-CCR methodology to banks with international operations or large derivative books, the RBI is seeking to ensure that institutions with greater exposure to counterparty risk maintain capital buffers that more accurately reflect those risks.
At the same time, allowing other banks to choose between CEM and SA-CCR provides a proportionate regulatory approach.
The RBI’s revised Standardised Approach for Counterparty Credit Risk marks another step towards strengthening India’s bank-capital and risk-management framework.
With SA-CCR mandatory for banks with an international presence and those carrying derivative outstanding of ₹25,000 crore or more, the new framework places greater emphasis on sophisticated measurement of counterparty exposures.
For other banks, the choice between CEM and SA-CCR offers flexibility while allowing institutions to transition to a more advanced risk-measurement framework as their derivatives businesses grow.
(Economy India)
